As the Dubai property market continues to mature, first-time homebuyers are increasingly looking to financial institutions, encouraged by high rents and value-for-money properties. According to the report, Bridge over mortgaged waters, by Unitas and Reidin, sales transactions may have slowed but the uptake in mortgages has sped up, taking up 55 per cent of sales activity – doubling over the last seven years.

With that Dubai is closing in on mature markets such as the UK and the US, where cash sales only account for 30-40 per cent of all transactions, the report highlighted. Mortgage consultancy and brokerage Home Matters has recorded a significant upturn in mortgage enquiries and applications for pre-approval since September last year.

“We believe the UAE property market has already entered into a stabilisation phase, which will see house prices firm up throughout 2017,” says Jean-Luc Desbois, managing director of Home Matters.

“The ratio of cash purchases to mortgaged transactions is continuing to adjust in favour of the latter, as the market dynamics have changed,” explains Desbois. “There are less speculative cash buyers and more end users entering the market.”

One of the main reasons for this, according to Desbois, is that property prices are now 20 per cent cheaper in most areas compared with 2013, whereas rental prices have fared better over the same period.

“Therefore, it is now cheaper to buy than rent,” he emphasises.

Hozefa Kapadia, market research analyst at the property consultancy and chartered surveyor Land Sterling, concurs. “In terms of percentage value of the total transactions value, mortgage transactions outpaced cash sales transactions last year,” says Kapadia, citing a more cautious investment approach among buyers as one of the reasons. “Investors are looking out for value for money and higher return on their investments.”

The more measured approach to buying property, with less cash purchases, has indeed contributed to the cooling of the market, according to Reidin, as mortgage transactions take more time due to the paperwork and approvals involved.

Typically, a property is transferred within 30-60 days in mortgage transactions as opposed to 15-30 days when paying in cash.

Future trends

While Kapadia estimates the mortgage transactions value as a percentage of the total transaction value to increase this year conservative by 1-3 per cent, Faisal Durrani, head of research at Cluttons, this number depends on the buying appetite of outside investors.

“It’s difficult to forecast what the ratio of cash to mortgage buyers will look like this year, but as has been the case historically, domestic buyers are largely mortgaged buyers, whereas investors tend to be cash buyers,” Durrani points out. “We know from our Middle East Private Capital

Survey that Dubai ranks as the top property investment destination for GCC millionaires this year, ahead of London.

“With global economic uncertainty likely to persist, investors are likely to look at home markets more favourably, so Dubai may well enjoy a boost from regional investment activity.”

However, at the same time he cautions that top sources of property investment such as the UK, Europe and Russia may see a further slowdown in activity to currency swings.

However, in whatever direction the global economy develops, Desbois expects a further strengthening in demand for mortgages. “Particularly when the wider public starts to see stabilisation and prices strengthening in key areas,” he says.

Hot and cold mortgages

According to the Reidin-Unitas research, mid-income homebuyers are increasingly taking mortgages thanks to the wide availability of bank financing, despite more stringent rules imposed by the UAE Central Bank in 2014.

However, it is villas leading in terms of mortgage activity as owners have started to refinance their homes to extract liquidity. This is partly due to the fact that villas have a higher value the world over; in Dubai villas on average cost two and a half times more than apartments, according to the report.

The report points out that mid-market communities such as Jumeirah Village Circle (JVC) and IMPZ have overtaken former favourites such as Jumeirah Lakes Towers (JLT) and Dubai Marina, indicating a shift in buying preferences as a result of lower price points and bank finance access. Indeed, according to Land Sterling, apartments in JVC and IMPZ top their clients’ buy list, while the Arabian Ranches leads in the villa arena. JLT and Business Bay are ahead in the office segment.

While completed properties may still take the lion’s share of the mortgage market, off-plan mortgage activity also plays a significant role. “We get mortgage requests mainly for completed property, with a balanced mix of apartments and villas,” says Kapadia. “We are also seeing interest in near-completion villa projects, such as Arabian Ranches 2 and Mudon.”

According to the Reidin-Unitas report, a shift has occurred in the off-plan market with mortgages for private developer projects overtaking those taken out against property developed by government-related developers last year. The reason is that homeowners and banks have become more comfortable to buy and finance private developments.

However, financing an off-plan property is still not easy, despite some developers offering a 50-50 payment schemes — 50 per cent during construction and 50 per cent after completion.

“Developers are now offering more favourable payment plans with a higher percentage due on completion,” says Desbois. “However, most banks will not issue final mortgage offer letters if the final payment is greater than three months away, which leaves buyers exposed to changes in financial circumstances before properties reach handover.”

Kapadia, meanwhile, points out that such payment plans have rigid regulations.

“Generally, banks approve mortgage for new off-plan projects only once the project is more than 80 per cent complete as per a Real Estate Regulatory Agency audit,” says Kapadia. “For selected established developers like Damac and Emaar, off-plan mortgages are provided for up to 50 per cent loan to value.”

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